When construing a settlement agreement the court adopted an iterative process with the suggested interpretations being checked against the provisions of the agreement and their consequences investigated.
In 29 Buckland Crescent Management Company Ltd v White [2024] EWHC 1480 (Ch) Mr Justice Richards considered whether the county court had been correct to find that a settlement agreement which compromised proceedings in the First-tier Tribunal prevented the landlord from bringing subsequent forfeiture proceedings. As the county court had also concluded that the lessee would in any event be entitled to relief from forfeiture, the significance of this issue was as regards costs – if the landlord had been entitled to bring the forfeiture proceedings, it was seeking costs on an indemnity basis under the settlement agreement, rather than having to pay the lessee 90%, which had been awarded.
The appellant landlord was the freehold owner of 29 Buckland Crescent, a building divided into four flats. The respondent was the long lessee of a flat on the second floor of the building. Since the summer of 2019, the flat below his had experienced six leaks from the lessee’s bathroom. The landlord alleged that the leaks were as a result of the bathroom being in disrepair in breach of the lessee’s lease. It commenced tribunal proceedings to determine this liability and also the issue of unpaid service and administration charges.
Those proceedings were compromised by way of the settlement agreement, however the agreed works to the bathroom were not commenced as agreed and the landlord served a notice under section 146 and then issued forfeiture proceedings.
Clause 4 of the settlement agreement stated that “the lessee admitted the breach… of the lease as set out in the landlord’s application under section 168(4) of the Commonhold and Leasehold Reform Act 2002…” It also contained a general release and an agreement not to sue, with an exception at 7.2 that “[The general release and agreement not to sue] shall not apply to any claims in respect of any breach of this agreement.”
The landlord accepted that, in the absence of the exception, forfeiture proceedings would be precluded, but contended that the correct interpretation of the agreement as a whole was that such proceedings were permitted. The lessee contended that forfeiture proceedings did not fall within the exception, being more properly characterised as proceedings for breach of the lease.
The correct approach to the construction of the settlement agreement was as set out in Lukoil Asia Pacific Pte Ltd v Ocean Tankers (Pte) Ltd [2018] EWHC 163 (Comm). The appellate judge considered the natural meaning, which did not particularly favour either party. The fact that the lessee’s contention rendered the exception otiose (as parties to agreements are always free to sue if the agreement is breached) slightly favoured the landlord’s interpretation. However, it was following the iterative approach to the construction (analysing the exception in the context of the factual matrix taken as a whole) which led to the conclusion that the landlord had the right to bring the forfeiture proceedings.
The admission of breach recorded in the settlement agreement was best explained as a means to preserve the right to forfeit. Viewed objectively, it would not be straightforward to understand why the landlord would give up the right to invoke the powerful sanction of forfeiture against a lessee with whom it did not have good relations and who had caused considerable disruption to the flat below.
The appeal was allowed. The settlement agreement did not preclude the landlord from bringing forfeiture proceedings.
Elizabeth Haggerty is a barrister
